Household Employees and Taxes

Chandra By: Chandra Reau, Staff Accountant

Household Employees and Taxes

It’s not uncommon for people to hire an employee to work within their home. Whether it’s a private nurse, a nanny or a housekeeper, there are tax implications to keep in mind. You may have heard some buzz about this before- it is often referred to as the “nanny tax.”

If the worker brings their own equipment, does that qualify as an independent contractor instead of an employee?   Do you need to pay employment taxes?  All valid questions. Let’s dig a bit deeper.

Based on IRS Publication 926, the worker is an employee if you can control not only what work is completed but also how it is done.  Misclassifying a domestic worker is a common mistake.   This issue is generating more questions as the health insurance mandates on the exchange require W-2s.

In general, domestic workers are usually employees instead of 1099 independent contractors.  Three categories need to be considered – behavioral, financial, and type of relationship, as defined on Publication 926.  If you still are uncertain, the IRS SS-8 form may be used to solicit a ruling on the classification.  Or, you can contact Holbrook & Manter and we can quickly make the classification.

Wait, that’s not all. Employment taxes for Social Security and Medicare also need to be considered.  The employee may not be required to withhold income tax for federal, state and local, but failure to do so may subject the employee to underpayment penalties.  If you have hired an employee, it’s easy to overlook Ohio’s requirement for Workers’ Compensation coverage.  A family could be liable if an employee is injured on the job and no policy is in place.

In addition, business and personal payroll must be handled separately.  The IRS will not allow a CEO’s household employee to run through the company payroll.

Holbrook & Manter has assisted many clients make this determination and meet the compliance rules that are required.  We are happy to provide answers to your questions. Fill out the form below to contact us today.




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